Overview of the Model GST Act, 2016 giving stepwise summary of as to how the scheme of Act would be applicable

1. Model GST Act: Salient Features
CA Ashish Chaudhary
Background
Everyone is awaiting what would be outcome of Constitutional Amendment Bill in the present
winter session. But the government seems to be very keen to introduce the GST from next
financial years. After issuing Joint Committee Reports on registration, refund, tax payment
and filing of return last month, the government has issued draft model law on GST. (The
source of release could not be independently verified in the absence of it being unavailable
on the government portal). There would be separate Acts for CGST, SGST and IGST. The
model Act would guide for drafting GST Act for each of the state.
Levy of Tax
Charging section 7 of the Act provides that there shall be levied a tax called the
Central/State Goods and Services Tax (CGST/SGST) on all intra-State supplies of goods
and/or services at the rate specified in the Schedule . . . to this Act and collected in such
manner as may be prescribed. The CGST/SGST shall be paid by every taxable person in
accordance with the provisions of this Act. The essential features of the Act are as follows:
1. There should be a taxable person:
Taxable person has been defined in the section 9 of the Act. It covers
 Any person carrying on business in India
 Include CG,SG and local authorities in relation to transactions in which they are
engaged as public authorities
 Employees, in relation services provided to employer, kept out of definition of
taxable person
2. The taxable person should be engaged in the business
The definition of taxable person provides that the person should be engaged in carrying
out any business. The business has been defined in section 2 (13) in very wide term. It
includes the following:
(a) any trade, commerce, manufacture, profession, vocation or any other similar
activity, whether or not it is for a pecuniary benefit;
(b) any transaction in connection with or incidental or ancillary to (a) above;
(c) any transaction in the nature of (a) above, whether or not there is volume,
frequency, continuity or regularity of such transaction;

2. (d) supply or acquisition of goods including capital assets and services in connection
with commencement or closure of business;
(e)provision by a club, association, society, or any such body (for a subscription or
any other consideration) of the facilities or benefits to its members as the case may
be;
(f) admission, for a consideration, of persons to any premises; and
(g) services supplied by a person as the holder of an office which has been accepted
by him in the course or furtherance of his trade, profession or vocation;
but does not include agriculture;
3. The business should be in relation to goods or services:
To levy GST, the business should be in relation to goods or services. The term goods
and services have been defined as follows:
Section 2 (31): “goods’’ means every kind of movable property other than actionable
claim and money but includes securities, growing crops, grass and things attached to or
forming part of the land which are agreed to be severed before supply or under the
contract of supply;
Section 2 (59): “services’’ mean anything other than goods;.
Note: The service has been defined very large. It could include immovable property
also.
4. There should be supply
GST is levied on supply of goods or service. Supply has been defined in section 3 of the
Act as follows:
Supply defined in very wide term to cover all forms of supply such as:
 Sale, Transfer, Barter, Exchange, Licence, Rental, Lease, disposal and
importation of assets for consideration in the course of business
 Schedule I: Supply without consideration as deemed supply
 Schedule II: Determination of what is supply of goods and supply of services
5. The supply should be of goods/services
6. Such supply should be in the course of business
7. The tax shall be levied at the time of supply of goods/services.
 Tax shall be levied at the time of supply of goods/services. The time of supply of
goods and services have been provided separately.
 Time of supply of goods shall be earliest of the following dates: (section 11)

3. i. Date of removal of goods by supplier to the buyer for supply
ii. Where goods are not required to be removed, the date on which goods are
made available to the buyer
iii. Date when supplier issues invoice for supply
iv. Date on which supplier receive payment for supply
v. Date on which buyer shows receipt of goods in books of account
 Distinction has been made between REMOVAL and SUPPLY. Where goods
have been removed but supply has not taken place, the time of supply shall be
when it become known that supply has taken place or 12 months from removal
date, whichever is earlier
 Time of supply of service shall be earliest of following: (section 12)
i. The date of issue of invoice or date of receipt of payment, whichever is
earlier. (provided invoice issued within prescribed time)
ii. Date of completion of service or receipt of payment, whichever is earlier. (if
invoice not issued within prescribed time)
iii. Date on which recipient shows receipt of service in books of account. (If not
covered by case i and ii above)
 In case of services covered by reverse charge, the time of supply shall be
earliest of
i. Date of receipt of service
ii. Date of which payment is made
iii. Date of receipt of invoice
iv. Date of debit in books of account
 Provisions have been made for determining time of supply of service in case of
continuous supply of service on milestone basis
8. Nature of tax (CGST/SGST/IGST) shall depend upon nature of supply
 Supply of goods shall be :
i. Interstate supply: if supply involves movement of goods from one state to
another
ii. Intra state supply: If goods remain within the state
 Supply of service shall be
i. Interstate supply: If service provider and service receiver are located in
different states
ii. Intra state supply: If located in the same state

4.  Above principles of supply of goods and supply of service are by default principle.
In case of specified goods and services, nature of supply may change depending
upon the place of supply.
9. Nature of supply would depend upon place of supply. Separate provisions have
been made for determining place of supply of goods (section 15) and place of supply of
service (section 16) in case of specified goods and services.
10. The supply should be for a consideration
 Tax can be levied only when there is consideration. In the absence of
consideration, no tax shall be levied
 Consideration has been defined in section 2 (20) in relation to supply of
goods/services as:
i. Any payment in money or otherwise in respect of supply of goods or services,
whether by person or by any other person
ii. Monetary value of any act or forbearance in respect of supply of goods or
services
iii. Refundable deposit shall not be considered as consideration unless this is
adjusted against value of goods/services supplied
11. The tax shall be levied on value of taxable supply:
 Value of taxable supply shall be transaction value. Transaction value shall
include the following:
i. Price paid or payable for supply of goods or services
ii. Value of free supply or supply at reduced cost by recipient of supply to
supplier
iii. Royalties and licence fees relatable to supply of goods and service
iv. Any duty, tax, cess, fees levied other than CGST/SGST/IGST
v. Incidental expenses at the time or before delivery of goods/services
vi. Subsidy linked to supply
vii. Any discount allowed after supply has been effected. Discount allowed before
or at the time of supply shall not be included in the transaction value.
 Where value cannot be determined as per above, it shall be calculated in
accordance with the rules framed in this behalf.
12. The rate of tax shall be as specified in the schedule:

5. The rate of tax has not been provided in the Act. It would be provided separately in the
schedule. There may be different rate of taxes for different class of goods and services.
13. The tax may be paid after availing input tax credit.
 Tax may be paid after adjusting the eligible credit.
 Where goods and services are used partly for business and partly for other
purpose, credit shall restricted as attributable to business
 Where goods (excl. capital goods) and services are partly used for taxable supply
and partly for non taxable supply, credit restricted to taxable supply.
 Order of utilisation shall be as follows:
i. IGST to be used for IGST, CGST and SGST in that order
ii. CGST to be used for CGST and IGST in that order
iii. SGST to be used for SGST and ISGT in that order
iv. CGST to SGST and SGST to CGST adjustment not possible
 Excess credit may be carried forward to next tax period
 Credit can be claimed as refund where accumulated due to export or where tax
on input is higher than tax on output
 Certain expenditure mainly in the nature of personal expenses have been
excluded from the eligibility of credit
14. Option has been provided for payment of tax under compounded scheme
 Section 8 of the model Act talks about compounding scheme. The option would
be available to registered taxable person whose turnover in a financial year does
not exceed Rs. 50 lacs.
 The term “turnover” has been defined in very wide term which includes:
i. Taxable supply
ii. Non taxable supply
iii. Exempt supply
iv. Export
 Payment under compounding scheme shall be considered as “amount” not “tax”.
 The rate under compounding scheme shall not be less than 1 % as may be
notified. The amount needs to be paid on turnover (not on taxable turnover). This
means it would be applicable on exempted, non-taxable and export supply also.
 Compounded scheme option not eligible to person making inter-state supply and
the person liable to pay tax under reverse charge mechanism.

6.  In case of services to be specified by CG/SG, in respect of specified category of
taxable service, option of compounding scheme would be available. Here, the
rate may be less than 1% also as nothing has been specifically mentioned.
15. The government may provide exemption from tax:
 Exemption may be granted by government based on recommendation of council.
The exemption may be absolute or conditional.
 Where exemption has been granted absolutely, it would be mandatory to claim
the exemption.
16. Registration needs to be taken by person liable to pay tax (section 26)
 There would be separate categories of registrations for different taxable persons
viz., normal taxpayer, taxpayer under compounding scheme, casual dealers, non-
resident supplier, input service distributor and unique ID for UN bodies/
governmental authorities and PSUs.
 Registration would be PAN based.
 An entity having a single PAN but effecting supplies from multiple States would
be required to take registration in each of the States from where the supply is
being made.
 Separate registrations may be taken for different business verticals within the
same State. This would be optional and not mandatory.
 The facility of taking registration through Tax Return Preparer (TRP) and
Facilitation Centre (FC) has been introduced.
17. Taxable person needs to file the return
 Every taxable person required to file return submitting details of outward supply
on or before 10th
of the succeeding month (section 34)
 Details of inward supplies need to be submitted before 15th
of the succeeding
month (section 35)
 Final return shall be submitted on or before 20th
of the succeeding month giving
details of inward and outward supplies of goods and/or services, input tax credit
availed, tax payable, tax paid and other particulars.
 Person deducting TDS has to file the return within 10th
of the succeeding month.
 There is no mention about ISD in the Act.
 Every registered dealer, other than casual and non-resident dealer, is required to
file annual return on or before 30th
December after end of FY.

7. 18. Tax needs to be paid on or before filing of return
 It has been provided in the model law that the tax should be paid before filing of
return.
 If tax is not paid, the return filed shall be deemed to be invalid.
19. Tax deduction at source (TDS)
 CG or SG may mandate deduction of tax @ 1% on payment made or credited by:
i. Department of CG or SG
ii. Local authorities
iii. Governmental agencies
iv. Other notified categories
 It should be deducted on specified goods or service to be notified
 Applicable when total value of such supply under a contract exceeds Rs. 10 lacs
 TDS should be deducted within 10th
of next month. Delay in payment would
attract late fee of Rs. 100 per day
20. Assessment
 Every registered person shall self assess the tax payable by him under the Act
 Returns furnished by taxpayer would be subject to scrutiny by department
 Department may carry out best judgment assessment in case of non-filers of
return and unregistered person.
21. Audit
 Every registered taxable person whose turnover during a financial year exceeds
the prescribed limit shall get his accounts audited by a chartered accountant or
cost accountant.
 The department officer may carry out the audit of any assessee by a special or
general order
 The audit should be completed with 3 months from the date of commencement of
audit
 There is provision of special audit by CA or CMA also in case of exceptional
circumstances.
22. There are provision for recovery of tax, interest, imposition of penalties, detention and
confiscation of goods, arrest and prosecution.
23. Provisions for appeals and reviews have also been provided.

8. 24. Facility of Advance Ruling would be available. However, presently, no provision has
been made for settlement commission.
25. Transitional Provisions
 Transitional provisions have not been discussed in detail. It has only provided
that the taxable person may carry forward the unutilised balance of cenvat credit
of excise and service tax taken under Cenvat Credit Rules, 2004 and VAT credit
lying with him on the date of switching over to GST.
 The credit may be carried forward in such manner as may be prescribed.
Conclusion: On cursory look at the GST Act, it appears that the same has been drafted in
very simplified manner avoiding much of provisio, explanations and other jargons. It also
appears that the same is line with the industry expectations and one can expect that it would
certainly be able to achieve the objective of simplifying the Indirect Tax laws in India.